In our last article—“How Can We Increase the Average Rate for Our Hotel Rooms?“—we touched on the topic of revenue management. This time, we’d like to delve deeper into the concept of a revenue management culture and focus on proper implementation and a step-by-step strategy.
Table of Contents
The OriginTheof Revenue Management: Sabre
We’ll start with the beginnings of revenue management, which dates back to the 1970s and 1980s in the aviation industry. Revenue management emerges in two key areas:
- The deregulation of air transport
- The emergence of GDS (Global Distribution System)
The pioneer of a revenue management culture was Robert Crandall, then CEO of American Airlines . He was the one who started offering airline seats that he believed he couldn’t sell cheaper. The search was on for ways to compete with low-cost carriers while increasing profit margins .
At the same time, in the early 1970s, American Airlines created SABRE , a new computer-based booking system . By the middle of the decade, more than 75 travel agencies were connected to the system , saving on telephone and fax costs.
From this point on, and in order to compete with SABRE, direct competitors United Airlines developed the Apollo program, and British Airways, Alitalia , KLM , and Swissair joined forces for Galileo . Finally , Lufthansa, Iberia , and Air France joined forces to create the Amadeus system.
Later, these reservation systems were implemented in a wide variety of service sectors, such as car rentals and hotels.
What Is the Exact Meaning of Revenue Management?
In short, it refers to the applied optimization of revenue. Put simply , it involves specific techniques that analyze the market, the product in question, and demand, as well as identifying potential factors that influence customer behavior, with the ultimate goal of maximizing hotel profits.
In this section, I’d like to add a comment. I’d like to clarify the differences between revenue management—as described above—and yield management, since the two are often confused.
In my opinion, yield management is a technique (less developed) within the revenue management culture. Since we are currently emphasizing rational benefits, revenue management is largely about achieving increased profitability in the long term. How exactly is this achieved? It’s about selling the right product to the right customer at the right price, at the right time, and through the most suitable channel.
This strategy should always focus on customer satisfaction , as this will ensure the long-term benefits of the optimization. Furthermore, I would like to emphasize that all departments within the hotel should be involved in this strategy, as otherwise, effectiveness is unlikely.
Revenue Management Strategies in Hotels. SchlüsKey Steps
- Analysis of the situation, the status of our organization, our competitors, demand, the market, or the destination.
- Making decisions. Based on the information we’ve gathered, we must make decisions. (To do this, we need to know exactly what we want.)
- Implementing the strategy. Based on our objectives, we must follow specific steps. We begin with implementation. To do this, it is important that the hotel team is fully involved.
- Evaluation. Evaluation must be ongoing, always with an eye toward the effectiveness of our actions and strategies. We need to know whether we are achieving the goals we have set for ourselves.
- Feedback. Feedback should be effective and continuously improve in all areas. Everyone, regardless of their position in the hierarchy, must be part of the process.
Key Metrics for Comparing Results
- RevPAR. Revenue per available room.
- TrevPAR. Total net revenue per available room.
- GopPAR. Operating profit per available room.
- RevPAG. Revenue per guest present.
- TrevPAG. Total revenue per guest present
- RevPASH. Revenue (used in bars and restaurants) per available seat per unit of time.
- RevPAM. Revenue (used in the events sector) per available square meter.
- RevPATI. Revenue per inventory unit. This metric can be used in various ways because it is easy to adapt.
Total Revenue Management: The Right Strategyegy
Staff should be trained, motivated, and encouraged to participate in regular meetings. Starting from there, we can discuss Total Revenue Management.
Revenue management should not be limited to rooms alone. There are many other service levels or products that are suitable for differentiating in these areas as well.
These service levels and products vary depending on the type of hotel. Examples include restaurants, spas, meeting rooms, and compensation for other hotel activities, etc.
Finally, it is important to note that when it comes to setting objectives for each department, great care must be taken to avoid creating conflicts of interest within the departments .
This would have a negative impact on the achievement of the overall goals.
Unfortunately, a lack of initiative and inadequate staff training, combined with goals that are either not clearly defined or nonexistent, very often lead to the kinds of negative situations frequently seen in hotels.
These can be attributed to a poorly implemented revenue management culture.
We hope you enjoyed this brief introduction to the world of revenue management and that it will help you implement it correctly, leading to more profitable business results. Always keep customer satisfaction in mind, and be sure to train and motivate your entire team at your hotel or resort.
Did you enjoy this article? Did it spark your interest in the topic or help you in some way? If so, please share it!
Hotel Marketing and Hotel Strategies
